THAT FIRST TIER COMES WAY TOO LATE:

Social insurance needs rethinking (Stuart Butler, August 13, 2009, Washington Times)

A revamped approach to retirement security that reduces debt would have three tiers.

The first tier is personal savings. Those who aren't poor should be expected to save for predictable events, such as a basic income and routine health care costs during retirement. But most Americans suffer from inertia and don't get around to saving systematically. That's why it's a good idea for employers automatically to enroll their workers in retirement savings plans. You could opt out, but under the default you would be enrolled. Bipartisan legislation on Capitol Hill, with President Obama's blessing, would help firms set up such "auto-enrollment" savings plans.

Second, we should make "real" insurance, not social insurance, the first resort for dealing with events such as catastrophic medical expenses, disability, long-term care and unemployment. Individuals who can afford to carry reasonable levels of insurance should do so, rather than expect "society" to cover for them.

Traditional social insurance programs such as Medicare and Social Security should be the final tier. But they need to be scaled back and reserved for those who truly need them. Adjusting benefits according to economic status is the fairest, most rational way to ensure economic security without committing fiscal hara-kiri.

Requiring and/or funding O'Neill accounts and HSA's for every newborn will leave them with sufficient wealth later in life that they won't need to draw upon social insurance. The genius of forced savings early in life is that when you add a means test you dispose of the old Welfare State for everyone.

Posted by Orrin Judd at August 13, 2009 7:00 AM